To Your Health
September, 2008 (Vol. 02, Issue 09) |
|
|
Retiring Right
By Stanley Greenfield, RHU
Learning how to choose the right retirement plan can be a stressful exercise in financial security, but it's a necessary one. If you don't do your homework, your financial future could be in serious jeopardy. Invest time and energy in making the right choice, and you could be financially comfortable for the rest of your life and leave a little for your loved ones after you're gone.
Retirement Plans
We all have retirement plans. Some act on them and put them into place; others just keep thinking about their plans and secretly hoping a rich relative will make those plans come true. Before you get started on setting up any type of plan, here are some questions you need to ask yourself:
- How much can I afford to deposit into a plan?
- Do I really want to tie my money up in a plan?
- Do I really want to wait until age 60 or later to retire?
- Do I want to pay all the fees associated with many retirement plans?
Before you start to look at or compare plans, you need to know what you're looking for. Too many people don't consider that until they have a plan in place, and then it's too late. There are alternatives to qualified retirement plans that should be taken into consideration.
The qualified retirement plan picture is changing at a rapid rate these days. A lot of major companies have decided the plans no longer do what they wanted them to for their employees. Employers wanted the plans to buy employee loyalty, but they don't do that now. Most employees expect an employer to have a plan. But most companies didn't anticipate the expenses involved in keeping a plan current. The IRS has gone on a tear, changing the rules concerning plans almost every year. That has caused a lot of companies to freeze or totally eliminate their plans, and I think that trend will continue.
Most of us, if we're lucky, will spend at least one-third of our lives in some form of retirement, either total or in a work/retirement mode. Based on that estimate, we probably will need to grow a substantial amount of assets to supply a source of income during that extended period of time.
One aspect of retirement planning is the effect taxes will have on a plan. Usually, we are "sold" on the tax savings we will see by setting up a plan. It usually is illustrated by the fact that for every $100 we deposit into a qualified plan, we will "save" $30 in current taxes. Deposit $1,000 and save $300. Deposit $10,000 and save $3,000. That's appealing since everyone wants to save on taxes.
The problem is they never tell you the "rest of the story." What happens when you start taking out the money at retirement? At retirement, the money comes out and is taxed as ordinary income. They usually say you will be in a lower tax bracket at that time. I personally doubt that, since I have yet to see taxes going down or, better yet, that I'm paying less in taxes. The bottom line is for every dollar you save in taxes on deposits to a qualified retirement plan, you ultimately will pay the IRS $10. Yes, it's true, and I'll say it again: For every dollar saved now, you will pay $10 in taxes when you retire.
